Unlike other African nations, Uganda aims to dodge 'oil curse'

After one of the largest oil discoveries in sub-Saharan Africa, Uganda is trying to avoid the pitfalls of other African nations that have become flush overnight with petrol dollars. Many worry that a culture of corruption could stymie these efforts.

ByIoannis Gatsiounis, ContributorApril 23, 2010

A fisherman and his children wind up a net in the village of Ntoroko, Uganda. Oil development could put such livelihoods at risk even as the government seeks to avoid the 'oil curse' that has befallen other African nations, some say.

Kampala, Uganda — At 2 billion barrels and counting, Uganda's recent oil discovery in the Lake Albert Basin is among the largest ever in sub-Saharan Africa. That might seem cause for optimism, but with endemic corruption and a chain of African nations laid waste by the "oil curse," in which oil often does more harm than good, few here are confusing the oil find with an easy path toward development.

In December, cynicism mounted when parts of the government's production-sharing agreements were leaked on the Internet. The leaks suggest that the deals put a large risk on the government and are overly profitable for the key contracted companies, Tullow of Britain and Heritage from Canada. (Heritage later sold its stake to Tullow, which is expected to sell part of those shares to China National Offshore Oil Corp. and Total of France.)

Critics count that as proof that Uganda may become the next victim of the oil curse. But the gloom may be premature. "Experience has shown that normally the problem is not the production-sharing agreements, but rather the revenue management," says the World Bank country manager for Uganda, Kundhavi Kadiresan.

Maximizing oil revenue's potential

And revenue management is an area that Uganda appears determined to get right. Unlike Africa's other oil heavyweights, the Ugandan government has not gone on a consumption-led spending boom in anticipation of oil revenues, which may reach more than $50 billion and will kick in when commercial production begins next year. Rather, it is targeting projects – from railways and roads to science, training, and education – that will maximize the oil's economic potential.

"Uganda is in a great position not to repeat the oil curse," says Sebastian Levine, acting country director of the United Nations Development Program. "You have a fairly competent team exploring all potential options."

The government plans to set up an oil fund and a national oil company, and has announced plans to refine the oil. These steps are expected to decrease dependency on imports, improve economic value, and create jobs. While financing a refinery and an estimated $1.5 billion pipeline to the Indian Ocean have yet to be finalized, Tullow has announced it will service and shift toward export planning only after a nod from the government.

Lack of transparency

Still, say critics, the deal's overall lack of transparency leaves locals vulnerable. "How can Ugandans be involved if they don't have vital information?" says Dickens Kamugisha, chief executive officer of the Africa Institute for Energy Governance. "If the government is interested in public welfare, it would make itself accountable, and you do that through transparency."

Biraahwa Mukitale Stephen Adyeeri, member of Parliament for the Buliisa District, which sits on roughly half the find, says that, given oil's history on the continent, the concern isn't surprising. "But we haven't served the food yet, and you say the food is bad?" he quips.

Even some skeptics have been encouraged by the level of engagement by the government and its partners.

Xav Hagen, of the activist group Inter­na­tional Alert, recalls a time shortly after Uganda hit on the huge reserves, when villagers showed up at the sites clutching jerrycans and expecting to haul off oil like water. In the time since, Mr. Hagan says, the government and its partners have held radio phone-ins, consulted with village chiefs, and have even showed up at potentially hostile meetings.

Involving locals in the oil boom

Engagement is also being used to inform Ugandans how they can participate in and benefit from the oil boom.

The government has begun degree programs and other training initiatives to boost local human capital. An institute is being set up to train people in petroleum geology, production, and other related sciences. The country's largest university, Makarere, has begun a degree program in petroleum geoscience. The Uganda Christian University at Mukono will begin to teach oil and gas law soon.

Taimour Lay of Platform, the London-based group that obtained the leaked papers, says these measures do little to ensure oil production will succeed. Besides what he calls "unfavorable" production-sharing agreements, he points to a lack of a revenue management system, undemocratic politics, and a border dispute with the Democratic Re­pub­lic of Congo.

Environmental protection

Two years ago the government issued a national oil and gas policy that has generally been regarded favorably and is to be the framework of new legislation that would cover environmental protection and resource and revenue management.

Mr. Kamugisha cites the town of Chamwali, on the border with the Democratic Republic of Congo, where refugees have been driven from land they've occupied for 30 years. Meanwhile, tribal disputes in the oil-rich Bunyoro area have risen amid uncertainty about revenue-sharing, and there's talk of drilling in protected areas.

Frank Muramuzi, executive director of Uganda's National Association of Professional Environmentalists, says the largely unregulated landscape is worrisome.

The government and its partners say legislation will likely be finalized by year's end, putting them one step closer to turning the country's oil into gold.

Uganda is the latest African nation to win the 'oil lottery' – a find that may yield $50 billion a year. Oil wealth has typically led to dictatorships, corruption, slow growth, and conflict. But some signs point to Uganda's response being a different, hopeful one.